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A Poverty-Inequality Trade Off?

The idea that developing countries face a trade off between poverty and inequality has had considerable influence on thinking about development policy. The experience of developing countries in the 1990s does not, however, reveal any sign of a systematic trade off between measures of absolute poverty and relative inequality. Indeed, falling inequality tends to come with falling poverty incidence. And rising inequality appears more likely to be putting a brake on poverty reduction than to be facilitating it. However, there is evidence of a trade off for absolute inequality, suggesting that those who want a lower absolute gap between the rich and the poor must in general be willing to see lower absolute levels of living for poor people.